The Investment Strategy is the most important process in running an SMSF. Getting this part right is the difference between limping along on one cylinder and turning your SMSF into a high performance retirement vehicle.
Whilst administration and compliance are important, the real purpose of your SMSF is to maximise and manage your retirement savings. This point is often lost in the noise of compliance.
To put it into perspective, compliance is about operating inside the rules. I say that if you intend playing the game, learn the rules and then focus on the main game of investment management.
The same goes for taxation concessions. Quite apart from the fact that the same tax concessions are available to all superannuation trustees and members, fundamental investment decisions are never made on the basis of taxation alone.
Your Investment Strategy should be treated and respected as the Jewel in the Crown of your SMSF. Here are five (5) good reasons why:
The Investment Strategy is a fundamental document for every SMSF which, from day one stands beside the trust deed as the dual governing documents of your fund. Both govern your actions and put limits on what you can do. For this reason, neither document should be acquired without thought.
Your Investment Strategy is the driving force behind your fund. Without one, your SMSF is like a ship without a rudder. It exists but floats around aimlessly. Where you go is anyone’s guess.
While the existence of an Investment Strategy document is mandatory, it is actually your considered and deliberate processes behind the document that are of critical importance.
The Investment Strategy document itself is the written manifestation of the planning you do for your SMSF. So if the plan isn’t written by you or you don’t buy into it, then the document itself however compliant, is a waste.
Your Investment strategy need not be a lengthy or complicated plan. It must take into account the needs and circumstances of each member; and the overall liquidity of the fund. Further to that, it documents (under a few simple sub-headings) your decisions about how to invest the fund’s assets to achieve the fund’s objectives; which in turn reflect the objectives and risk profiles of each member.
Whenever I see a problematic SMSF, I usually find the investment strategy is either missing, out of date, or it has been trivialised to the bare minimum necessary to pass an audit. It appears to me to be one of the least respected and least effective SMSF documents. In reality, it represents the heartbeat of your fund and it should be treated that way.
This is general advice only. The purpose of this article is to provide you with education in SMSF investment, which is a complex area. As a licenced financial advisor, I strongly urge you to seek personal advice based on your individual goals, needs and circumstances, before making any decision about a self-managed superannuation.